CAPITAL GROUP POLIMEX-MOSTOSTAL LONG-FORM AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010

Transcription

1 CAPITAL GROUP POLIMEX-MOSTOSTAL LONG-FORM AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010

2 for the year ended I. GENERAL NOTES 1. Background The holding company of the Polimex-Mostostal Group (hereinafter the Group or the Capital Group ) is Polimex-Mostostal S.A. ( the holding company, the Company ). The holding company was incorporated on the basis of a Notarial Deed dated 18 May The Company s registered office is located in Warsaw at Czackiego 15/17. The holding company is an issuer of securities as referred to in art. 4 of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council of the European Union of 19 July 2002 on the application of international standards (EC Official Journal L243 dated 11 September 2002, page 1, polish special edition chapter 13, title 29 page 609) and, based on the article 55.5 of the Accounting Act dated 29 September 1994 (2009 Journal of Laws No. 152 item 1223 with subsequent amendments the Accounting Act ), prepares consolidated of the Group in accordance with International Financial Reporting Standards as adopted by the EU. The holding company was entered in the Register of Entrepreneurs of the National Court Register under no. KRS on 26 June The Company was issued with tax identification number (NIP) PL on 3 August 1993 and statistical number (REGON) on 27 July The principal activities of the holding company are as follows: execution of building and civil engineering works assembly of equipment, machinery and plant production of ironware The Group operates in four primary segments: Chemistry Power engineering General construction Production The scope of activities of the Group s subsidiaries, jointly controlled entities and associates are similar to this of the holding company. On the District Court for the capital city of Warsaw, XII Commercial Division of the National Court Register issued a resolution regarding an incorporation by the parent company, Polimex-Mostostal S.A., of its subisidiaries: Energomontaż-Północ S.A. with its registered office in Warsaw, Naftoremont Sp. z o. o. with its registered office in Płock, Zakłady Remontowe Energetyki Kraków Sp. with its registered office in Cracow, Zakłady Remontowe Energetyki Lublin S.A. z with its registered office in Lublin, EPE-Rybnik Sp. with its registered office in Rybnik, ECeRemont Sp. with its registered office in Zielona Góra and Naftobudowa S.A. with its registered office in Cracow according to Article point 1 of the Code of Commercial Companies Act. The merger was settled by a transfer of all assets and liabilities of incorporated companies to 2/16

3 for the year ended Polimex-Mostostal S.A. Along with the merger the Company registered an increase of share capital relating to acquisition of non-controlling shareholders of incorporated entities and introduced changes to its Articles of Association in accordance with resolution no. 1 of the Shareholder s Meeting held on 12 July 2010 and in case of Naftobudowa S.A. resolution no. 2 of the Shareholder s Meeting held on that date (the pooling of interests method, with Polimex-Mostostal S.A. as an acquirer). As of issued share capital amounted to 20,837 thousand zlotys at 31 December Equity as at that date amounted to 1,458,698 thousand zlotys. According to the notifications issued by shareholders owning more than 5% of share capital of the Company, acting pursuant to Article 69 1 point 1 of the Act on Public Offer and Conditions of Organised Trade in Financial Instruments, and on Public Companies, the ownership structure of share capital as at 28 April 2011 was as follows: Number of shares Number of votes Par value of shares % of issued share capital AVIVA Otwarty Fundusz Emerytalny AVIVA BZ WBK 52,224 52,224 2, % Pioneer Fundusz Inwestycyjny Otwarty 52,139 52,139 2, % ING Nationale-Nederlanden Polska OFE 40,406 40,406 1, % Polimex-Cekop Development Sp. * 13,152 13, % Other 363, ,233 14, % Total 521, ,154 20, % *subsidiary wholly owned by Polimex-Mostostal S.A. According to the notifications issued by shareholders owning more than 5% of share capital of the Company, acting pursuant to Article 69 1 point 1 of the Act on Public Offer and Conditions of Organised Trade in Financial Instruments, and on Public Companies, the following changes in the ownership structure were registered: increase in number of shares of Polimex-Mostostal S.A. owned by AVIVA Otwarty Fundusz Emerytalny AVIVA BZ WBK to 50,902 thousand from 27,486 thousand, as a result of a purchase of shares during the year ended. decrease of share percentage in share capital owned by Otwarty Fundusz Emerytalny PZU Polska Jesień below the level of 5%, as a result of registration on by the District Court for the capital city of Warsaw of the issue of series K and L stock issued due to the merger of Polimex-Mostostal S.A. and seven other companies. After the balance sheet date, up to the date of the opinion the following changes in the structure of the parent company s share capital took place: 3/16

4 for the year ended an increase of the amount of shares of Polimex Mostostal S.A. owned by AVIVA Otwarty Fundusz Emerytalny AVIVA BZ WBK to the level of 52,224 thousand as a result of a purchase on 25 January an increase of the amount of shares of Polimex Mostostal S.A. owned by Pioneer Fundusz Inwestycyjny Otwarty to the level of 52,139 thousand as a result of purchases on 28 January 2011 and 17 March exercise, as part of a conditional increase of the Company s business capital, of the right to take up 118,749 series G bearer shares of the Company resulting from subscription warrants, at the issue price of PLN 2.35 per share and the nominal value of PLN 0.04 per share. The increase of share capital was registered on 29 March The taking up of the aforementioned shares was contributed in the entirety. Movements in the issued share capital of the holding company in the year were as follows: Number of shares Par value of shares Opening balance 464,355,625 18,574, Increase in share capital as a result of incorporation ( ) Series K shares 38,733,090 1,549, Series L shares 17,829, , Closing balance 520,918,203 20,836, ===== ===== As at 28 April 2011, the holding company s Management Board was composed of: Konrad Jaskóła Aleksander Jonek Grzegorz Szkopek Zygmunt Artwik - President - Vice-President - Vice-President - Vice-President There were no changes in the holding company s Management Board during the reporting period as well as from the balance sheet date to the date of the opinion. 2. Group Structure As at, the Polimex Mostostal Group consisted of the following subsidiaries (direct or indirect): 4/16

5 for the year ended Entity name Consolidation method Type of opinion Name of authorised entity that audited Balance sheet date Depolma GmbH Not applicable Polimex-Cekop Development Sp. Not applicable Fabryka Kotłów Sefako S.A. (Capital Group) Ernst &Young Audit Sp. Naf GmbH Industriemontage Not applicable Grupa Kapitałowa Polimex-Development- Kraków Sp. Sinopol Trade Center Sp. Not applicable Moduł System Serwis Sp. Not applicable Stalfa Sp. Zakład Transportu Grupa Kapitałowa Polimex- Mostostal Sp. Qualified Polimex-Mostostal ZUT Sp. Polimex-Mostostal Ukraina SAZ Studio Audyt SPB Przembud Sp. w likwidacji Not applicable Czerwonograd ZKM- Ukraina Gałtex-Audit Sp. 5/16

6 for the year ended Polimex-Hotele Sp. z o.o. Not applicable Polimex-Mostostal Development Sp. z o.o. Grupa Kapitałowa Torpol Sp. Qualified Ernst & Young Audit Sp. Energomontaż- Nieruchomości Sp. z o.o Not applicable Energomontaż- Magyarorszag Sp. z o.o, with emphasis matter an of Jeszmás Tiborné Certified auditor no Energomontaż- Północ-Gdynia Sp. z o.o. Ernst & Young Audit Sp. Energop Sp. Moore Stephens Central Audit Sp. Energomontaż- Północ-Technika Spawalnicza Laboratorium Sp. z o.o. i Moore Stephens Central Audit Sp. Centrum Projektowe Polimex-Mostostal Sp. Zakłąd Budowlano- Instalacyjny Turbud Sp. Audit progress in MDDP Audyt Sp. Zarząd Majątkiem Górczewska Sp. Not applicable Przedsiębiorstwo Produkcyjno- Usługowe Elektra Sp. Not applicable PxM Projekt Południe Sp. Audit progress in MDDP Audyt Sp. 6/16

7 for the year ended Grupa Coifer Kapitałowa Audit progress in BDO Audit WBP Zabrze Sp. z o.o. PRInż 1 Sp. Pracownia Wodno Chemiczna Ekonomia Sp. z o.o Polimex-Mostostal Wschód Sp. Not applicable Centralne Konstrukcji S.A. Biuro Kotłów, with emphasis matter an of As at shares in the following associates (direct and indirect) were recognised in the Group s consolidated using the equity method: Name and registered office Polimex-Sices Sp. Type of activity execution of civil engineering works Energomontaż-Północ Bełchatów Sp. execution of customized building and civil engineering works Details of the type and impact of changes in entities included in the consolidation as compared to the prior year may be found in Note 17 of the summary of significant policies and other explanatory notes ( the additional notes and explanations ) to the consolidated of the Group for the year ended. 3. Consolidated Financial Statements 3.1 Auditors opinion and audit of consolidated Ernst & Young Audit sp. with its registered office in Warsaw, at Rondo ONZ 1, is registered on the list of entities authorised under no Ernst & Young Audit sp. was appointed by the Supervisory Board on 18 May 2010 the Group s. Ernst & Young Audit sp. and the key certified auditor in charge of the audit meet the conditions required to express an impartial and independent opinion on the, as defined in Art and 56.4 of the Act on statutory auditors and their self- 7/16

8 for the year ended governance, audit firms authorized and public oversight, dated 7 May 2009 (Journal of Laws 2009, No. 77, item 649). Under the contract executed on 15 June 2010 with the holding company s Management Board, we have audited the consolidated for the year ended. Our responsibility was to express an opinion on the consolidated based on our audit. The auditing procedures applied to the consolidated were designed to enable us to express an opinion on the consolidated taken as a whole. Our procedures did not extend to supplementary information that does not have an impact on the consolidated taken as a whole. Based on our audit, we issued an auditors unqualified opinion, with an emphasis of matter dated 28 April 2010, stating the following: To the Supervisory Board of Polimex Mostostal S.A. 1. We have audited the attached consolidated of Polimex Mostostal Group ( the Group ), for which the holding company is Polimex Mostostal S.A. ( the Company ) located in Warsaw at Czackiego 15/17, for the year ended containing the consolidated income statement and the consolidated statement of comprehensive income for the period from 1 January 2010 to, the consolidated balance sheet as at, the consolidated cash flow statement, the consolidated statement of changes in equity for the period from 1 January 2010 to and the summary of significant policies and other explanatory notes ( the attached consolidated ). 2. The truth and fairness 1 of the attached consolidated, the preparation of the attached consolidated in accordance with the required applicable policies and the proper maintenance of the consolidation documentation are the responsibility of the Company s Management Board. In addition, the Company s Management Board and Members of the Supervisory Board are required to ensure that the attached consolidated and the Directors Report meet the requirements of the Accounting Act dated 29 September 1994 (2009 Journal of Laws No. 152 item 1223 with subsequent amendments the Accounting Act ). Our responsibility was the attached consolidated and to express an opinion on whether, based on our audit, these comply, in all material respects, with the required applicable policies and whether they truly and fairly 2 reflect, in all material respects, the position and results of the operations of the Group. 3. We conducted our audit of the attached consolidated in accordance with: chapter 7 of the Accounting Act, 1 Translation of the following expression in Polish: rzetelność i jasność 2 Translation of the following expression in Polish: rzetelne i jasne 8/16

9 for the year ended national auditing standards issued by the National Council of Statutory Auditors, in order to obtain reasonable assurance whether these are free of material misstatement. In particular, the audit included examining, to a large extent on a test basis, documentation supporting the amounts and disclosures in the attached consolidated. The audit also included assessing the principles adopted and used and significant estimates made by the Management Board, as well as evaluating the overall presentation of the attached consolidated. We believe our audit has provided a reasonable basis to express our opinion on the attached consolidated treated as a whole. 4. We audited the consolidated for the year ended 31 December 2009 and we issued a qualified opinion dated 26 April 2010, with an emphasis of matter regarding those consolidated. The qualifications related to the recognition of revenue from consortium agreements and to the amount of a deferred tax asset recognized in connection with activities carried out by the Group in the special economic zones. The emphasis of matter related to the uncertainty concerning realization of the assumptions used in the valuation of the investment in Coifer Group. 5. In our opinion, the attached consolidated, in all material respects: present truly and fairly all information material for the assessment of the results of the Group s operations for the period from 1 January 2010 to, as well as its position 3 as at ; have been prepared in accordance with International Financial Reporting Standards as adopted by the EU; are in respect of the form and content, in accordance with the legal regulations governing the preparation of. 6. We have read the Directors Report for the period from 1 January 2010 to 31 December 2010 and the rules of preparation of annual ( the Directors Report ) and concluded that the information derived from the attached consolidated reconciles with these. The information included in the Directors Report corresponds with the relevant regulations of the Decree of the Minister of Finance dated 19 February 2009 on current and periodic information published by issuers of securities and conditions for recognition as equivalent the information required by laws of non-eu member states (Journal of Laws No. 33, item 259). We conducted the audit of the consolidated during the period from 29 November 2010 to 28 April We were present at the holding company s head office from 29 November 2010 to 10 December 2010 and from 21 March 2011 to 28 April Representations provided and data availability The Management Board of the holding company confirmed its responsibility for the truth and fairness 4 of the consolidated and the preparation of the in accordance with the required applicable policies, and the 3 Translation of the following expression in Polish: sytuacja majątkowa i finansowa 4 Translation of the following expression in Polish: rzetelność i jasność 9/16

10 for the year ended correctness of consolidation documentation. The Board stated that it provided us with all of the Group companies included in the consolidated, consolidation documentation and other required documents as well as all necessary explanations. We also obtained a written representation dated 28 April 2011, from the Management Board of the holding company confirming that: the information included in the consolidation documentation was complete, all contingent liabilities had been disclosed in the consolidated, and all material events from the balance sheet date to the date of the representation letter had been disclosed in the consolidated, and confirmed that the information provided to us was true and fair to the best of the holding company Management Board s knowledge and belief, and included all events that could have had an effect on the consolidated. 3.3 Consolidated for prior year The consolidated of the Group for the year ended 31 December 2009 were audited by Sebastian Łyczba, key certified auditor no. 9946, acting on behalf of Ernst & Young Audit Sp. with its registered office in Warsaw, at Rondo ONZ 1, registered on the list of entities authorised under no The key certified auditor issued a qualified opinion with an emphasis of matter on the consolidated for the year ended 31 December The qualifications related to the recognition of revenue from consortium agreements and to the amount of a deferred tax asset recognized in connection with activities carried out by the Group in the special economic zones. The emphasis of matter related to the uncertainty concerning realization of the assumptions used in the valuation of the investment in Coifer Group. The consolidated for the year ended 31 December 2009 were approved by the General Shareholders Meeting on 30 June The consolidated of the Group for the year ended 31 December 2009, together with the auditors opinion, a copy of the resolution approving the consolidated and the Directors Report, were filed on 16 July 2010 with the National Court Register. The consolidated balance sheet as at 31 December 2009, the consolidated profit and loss account, the statement of changes in consolidated equity and the consolidated cash flow statement for the year ended 31 December 2009, together with the auditors opinion and a copy of the resolution approving the were published in Monitor Polski B No on 3 September Analytical Review 4.1 Basic data and ratios Presented below are selected ratios indicating the economic or performance of the Company for the years The ratios were calculated on the basis of information included in the for the years ended 10/16

11 for the year ended 31 December 2009 and, not for the impact of the qualifications included in the Independent Auditor s Opinion * Total assets 3,923,518 3,807,342 3,395,827 Shareholders equity 1,458,698 1,363,079 1,127,832 Net profit/ loss 119, , ,439 Return on assets (%) 3,0% 4,6% 4,1% Net profit x 100 Total assets Return on equity (%) 8,8% 15,5% 13,3% Net profit x 100 Shareholders equity at the beginning of the period Profit margin (%) 2,9% 4,0% 3,3% Net profit x 100 Sales of finished goods, goods for resale and raw materials Liquidity I 1,3 1,3 1,2 Current assets Short-term creditors Liquidity III 0,2 0,3 0,2 Cash and cash equivalents Short-term creditors Debtors days 118 days 104 days 105 days Trade debtors x 365 Sales of finished goods, goods for resale and raw materials Creditors days 105 days 101 days 80 days Trade creditors x 365 Costs of finished goods, goods for resale and raw materials sold 11/16

12 for the year ended * Inventory days 42 days 33 days 37 days Inventory x 365 Costs of finished goods, goods for resale and raw materials sold Stability of financing (%) 56,5% 57,3% 55,5% (Equity + long-term provisions and liabilities) x 100 Total liabilities, provisions and equity Debt ratio (%) 62,8% 64,2% 66,8% (Total liabilities and provisions) x 100 Total assets Rate of inflation: Yearly average 2,6% 3,5% 4,2% December to December 3,2% 3,5% 3,3% * the data for the year 2009 used to calculate the ratios account for the prior year error relating to long-term contracts valuation in Coifer subsidiary included in the consolidated for the year ended. 4.2 Comments The following trends may be observed based on the above ratios: The return on assets ratio increased from 4,1% in 2008 to 4,6% in 2009 and then decreased to 3,0% in The return on equity ratio was 13,3% in 2008 and increased to 15,5% in In 2010 it fell to 8,8% in The profit margin ratio rose from 3,3% in 2008 to 4,0% in 2009 and decreased to 2,9% in The liquidity I ratio was 1,2 in 2008 and then increased to 1,3 in 2009 and remained constant The liquidity III ratio increased in 2009 to 0,3, as compared to the year 2008, when it was 0,2. In 2010 it decreased back to the level from The debtors days ratio was 104 days in 2009 and was lower than in 2008, when it equaled 105 days. In 2010 the ratio was 118 days. The creditors days ratio was 80 days in 2008 and increased to 101 days in and further to 105 days in The inventory days ratio was 37 days in 2008 and fell to 33 days in It increased to 42 days in The stability of financing ratio increased from 55,5% in 2008 to 57,3% in 2009 and then decreased to 56,5% in /16

13 for the year ended The debt ratio was 66,8% in 2008 and decreased to 64,2% in In 2010 the ratio was 62,8%. 4.3 Going concern Nothing came to our attention during the audit that caused us to believe that the holding company is unable to continue as a going concern for at least twelve months subsequent to as a result of an intended or compulsory withdrawal from or a substantial limitation in its current operations. In Note 6 of the additional notes and explanations to the audited consolidated for the year ended, the Management Board of the holding company has stated that the of the Group entities included in the consolidated were prepared on the assumption that these entities will continue as a going concern for a period of at least twelve months subsequent to and that there are no circumstances that would indicate a threat to its continued activity, excluding the following entities: - Nafto-Tour Sp. w likwidacji; - PORTY S.A. w likwidacji; - Energomontaż-Północ Sochaczew w upadłości. 13/16

14 for the year ended II. DETAILED REPORT 1. Completeness and accuracy of consolidation documentation During the audit no material irregularities were noted in the consolidation documentation which could have a material effect on the audited consolidated, and which were not subsequently adjusted. These would include matters related to the requirements applicable to the consolidation documentation (and in particular eliminations relating to consolidation adjustments). 2. Accounting policies for the valuation of assets and liabilities The Group s policies and rules for the presentation of data are detailed in note 13 of the additional notes and explanations to the Group s consolidated for the year ended. 3. Structure of assets, liabilities and equity The structure of the Group s assets and equity and liabilities is presented in the audited consolidated for the year ended. The data disclosed in the consolidated reconcile with the consolidation documentation. 3.1 Goodwill on consolidation and amortisation The method of determining goodwill on consolidation, the method on determining impairment of goodwill, the impairment charged in the year and up to the balance sheet date were presented in note 17 and 23 of the additional notes and explanations to the consolidated. 3.2 Shareholders funds including non-controlling interest The amount of shareholders funds is consistent with the amount stated in the consolidation documentation and appropriate legal documentation. Non-controlling interest amounted to 9,687 thousand zlotys as at. It was correctly calculated and is consistent with the consolidation documentation. Information on shareholders funds has been presented in note 31 of the additional notes and explanations to the consolidated. 3.3 Financial year The of all Group companies forming the basis for the preparation of the consolidated were prepared as at and include the data for the period from 1 January 2010 to. 14/16

15 for the year ended 4. Consolidation adjustments 4.1 Elimination of inter-company balances (receivables and liabilities) and inter-company transactions (revenues and expenses) of consolidated entities. All eliminations of inter-company balances (receivables and liabilities) and inter-company transactions (revenues and expenses) of the consolidated companies reconcile with the consolidation documentation. 4.2 Elimination of unrealised gains/losses of the consolidated companies, included in the value of assets, as well as relating to dividends All eliminations of unrealised gains/losses of the consolidated companies, included in the value of assets, as well as relating to dividends reconcile with the consolidation documentation. 5. Disposal of all or part of shares in a subordinated entity The effects of the sale of all the shares of Valmont Polska Sp. were disclosed in the Group s consolidated in accordance with the appropriate legal documents and consolidation documentation. 6. Items which have an impact on the group s result for the year Details of the items which have an impact on the Group s result for the year have been included in the audited consolidated for the year ended 31 December The appropriateness of the departures from the consolidation methods and application of the equity as defined in International Financial Reporting Standards as adopted by the EU During the process of preparation of the consolidated there were no departures from the consolidation methods or application of the equity 8. Additional Notes and Explanations to the Consolidated Financial Statements The additional notes and explanations to the consolidated for the year ended were prepared, in all material respects, in accordance with International Financial Reporting Standards as adopted by the EU. 9. Directors Report We have read the Directors Report for the period from 1 January 2010 to 31 December 2010 and the rules of preparation of annual ( the Directors Report ) and concluded that the information derived from the attached consolidated reconciles with these. The information included in the Directors Report corresponds with the relevant regulations of the Decree of the Minister of Finance dated 19 February 2009 on current and periodic information published by issuers of securities and 15/16

16 for the year ended conditions for recognition as equivalent the information required by laws of non-eu member states (Journal of Laws No. 33, item 259). 10. Conformity with Law and Regulations We have obtained a letter of representations from the Management Board of the holding company confirming that no laws, regulations or provisions of the Group entities Articles of Association were breached during the year. 11. Work of Experts During our audit we have taken into account the results of the work of the following independent experts: An independent actuary in relation to the valuation of provisions for the costs of retirement benefits, jubilee bonuses and the Social Fund liabilities for former employees of the Parent Company and its subsidiaries; Independent appraisers for the purpose of real estate valuation for subsidiaries. on behalf of Ernst & Young Audit sp. Rondo ONZ 1, Warsaw Reg. No 130 Key Certified Auditor Sebastian Łyczba Certified Auditor no Warsaw, 28 April /16